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China Creates an “Unreliable Entities List”

China’s Ministry of Commerce (“MOFCOM”) recently announced that it is creating an “Unreliable Entities List,” which will name any enterprise, organization, or individual who damages the interests of Chinese companies or threatens China’s national security. The move appears to be in response to the United States’ addition of Chinese company Huawei to the U.S. Entity List in mid-May—which effectively bars Huawei from receiving U.S. goods—and increases tensions between two countries that are already engaged in a trade war.

While details on implementation of the Unreliable Entities List have yet to emerge, initial takeaways include:

MOFCOM has not announced which (if any) companies or individuals will appear on the list. MOFCOM has not explained the procedure by which entities and individuals will be added to the list, although there may be some form of investigation. MOFCOM has not announced what restrictions will apply to entities and individuals included on the list. And MOFCOM has not indicated when specifically it will unveil the list or any applicable rules. Still, MOFCOM has identified certain actions that may trigger inclusion, including (1) failure to obey market principles and the spirit of contract law; (2) refusing or otherwise ceasing to supply Chinese firms for non-commercial reasons (conduct which might also be pursued as abusive under the Anti-Monopoly Law); (3) seriously harming the rights and interests of Chinese enterprises; and (4) threatening China’s national security interests. The creation of China’s Unreliable Entities List may place companies with operations in both the United States and China in a difficult situation, as they will need to navigate compliance with US export control and trade restrictions as well as China’s requirements of continued supply.

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